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USA Real Estate Blog

6 reasons why PMI is thriving in an uncertain housing market

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Private mortgage insurance’s growth rate should outpace that of total mortgage debt outstanding for 2019 as more consumers lacking the ability to put down 20% opt for a government-sponsored enterprise loan instead of a government program, a report from Keefe, Bruyette & Woods said.

At the end of 2018, total insurance-in-force — from all six private MIs as well as the Federal Housing Administration — was $2.3 trillion, up 1.7% from the third quarter and 7.2% from the end of 2017, the report said.

On the other hand, mortgage debt outstanding grew by approximately 3% year-over-year as of the end of the third quarter (the most recent available data).

Meanwhile, the FHA’s share relative to PMI of the total low down payment credit enhancement continued to shrink. At the end of the year, 52% of the total insurance in force was held by the FHA, with the six active and three run-off private companies holding the remaining 48%, according to KBW. This is a change from five years ago when the FHA dominated, with a 60% share to private MI’s 40%.

“We believe that private MI growth will continue to remain strong in the near to medium term driven by sustained high penetration in the purchase market led by a growing demographic of first-time home buyers using GSE loans,” the KBW report written by analysts Bose George, Thomas McJoynt-Griffith and Eric Hagen said. “Despite a decline in interest rates late in 4Q18, persistency remained elevated in the period and we do not expect much of a decline unless rates drop further. The decrease in premiums by the MIs (effective in June) should result in some market share shift from the FHA. According to the FHA Annual Report from November, nearly 15% of FHA borrowers in 2018 fiscal year had a FICO score of over 720. We believe that with the reduced MI pricing, this cohort should have lower premiums with private mortgage insurance.”

KBW estimated that the private MI’s insurance-in-force increased by $112 billion last year, while the FHA’s rose by just $43 billion.

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